What are the different types of blockchain technologies?
Generally, on-chain transactions are accessible on the distributed ledger, thereby becoming observable to all the nodes on the blockchain network. Contrary to the on-chain, Off-chain transactions are transfers of value outside the main network.
Each of these two ways of executing a transaction and storing data has its own advantages. The parties who are involved in recording a transaction usually choose the way that is most suitable to them. Unique features of both kinds will be explained in this article.
Blockchain technologies are mainly classified into four groups:
A public blockchain is a distributed ledger technology that is accessible to anyone, meaning that people who are connected to the internet can have access to it without permission. By joining the network, people can easily read, write or record information and make transactions in the blockchain that is not under the control of anyone.
Bitcoin blockchain is the first public ledger developed for doing transactions in a decentralized way. Ethereum and Litecoin are other examples of public blockchains.
Generally, on these public blockchains, transactions are verified through consensus algorithms such as Proof of Work (PoW), Proof of Stake (PoS) ,and practical Byzantine Fault Tolerance (PBFT).
Each consensus algorithm has its unique features, but their common characteristic is the main role that nodes play in validating transactions on the network by creating blocks. Nodes are interconnected and communicate new information with each other. Therefore, if there are no peers to participate in ensuring the truthfulness of the transactions, the blockchain will not be functional anymore.
On the contrary to the permission-less public blockchain, a private blockchain is the permission type of this technology. As its name suggests, it is not open to all people and works in a restrictive manner. In other words, only a defined number of people or a single organization have the right to join and use the network.
Some companies or organizations use it for their in-house use-cases. While allowing a certain number of participants to have access to the network, organizations can specify some parameters for the blockchain network such as reachability and authorization.
Reliability, immutability, security, and faster settlement are common features of both public and private types of blockchain.
A significant difference between public and private types is that the private blockchain is not decentralized in nature since it is under the control of a particular entity.
The consortium blockchain (also called federated blockchain) has some similarities with both private and public blockchain technologies, so it is placed somewhere in between. Whereas, some of its features are open to everyone, some aspects are kept in a private manner. Since it is managed by several organizations and the power is not concentrated in the hands of a single organization, it can still be decentralized in nature.
In spite of its closeness with the aforementioned two types, its big difference is that it chooses a limited number of parties that have equal power for validating blocks. In a public system, anyone can act as a validator and in a private system, a single entity decides about the procedures of validating blocks. However, in consortium type, a small number of organizations operating in the same specific industry can use a common platform to make transactions and share the newest information with each other. Quorum, Hyperledger are two examples of consortium blockchain.
In comparison to a public network, a consortium blockchain offers more scalability and efficiency. The consensus process is done faster because the specified nodes can do two functions-initiating or receiving transactions. However, it is worth considering that consortium network has less transparency and is vulnerable to attacks from hackers. Further, certain rules which are identified in this kind of blockchain can make the network lose its usability.
Hybrid blockchain is used by an organization that neither wants to employ an open network nor a closed network. In fact, the hybrid blockchain utilizes the best aspects of both public and private blockchain networks.
Although this type of blockchain is not accessible for everyone, it provides the main features that a blockchain should have including security, immutability, transparency, and integrity.
If a participant joins a hybrid blockchain, they can have unrestricted access to the network. As long as they do not participate in validating a transaction, their identity is not disclosed to other users.
The members of this type of network can select the participants and make decisions about whether to make public a particular transaction or not. One of this blockchain’s prominent aspects is that it is completely customizable.